03 · Earnings & Sensex

Do Earnings Drive the Index?

Source: NSE / BSE (FY-end closes) · Trendlyne (live EPS & P/E, 15-Jul-2026) · Motilal Oswal (EPS growth phases)

Over the long run, yes — when companies earn more, the market follows; when they don't, it eventually corrects. The last four years tell that story in four chapters.

FY19–22Healthy

10–12%

EPS growth / yr

Sensex rose steadily. P/E stable at 18–22×. Textbook healthy market.

FY22–24Bull Run

24%

EPS CAGR · best in a decade

Sensex 47,000 → 85,000 — earnings led the way.

FY24–25Risky

~1%

EPS growth · very weak

Sensex held near 85,000 on SIP / DII flows — not fundamentals.

FY26Recovery

~10%

EPS growth · recovery

Growth rebounded to ~10% (Motilal Oswal). FY27 now the swing year — earnings must sustain to hold valuations.

Sensex level vs Sensex EPS · r ≈ 0.97Sensex (level)EPS (₹)

Index level (left axis) and EPS (right axis) move almost in lock-step — correlation ≈ 0.97. Sensex EPS rose ₹1,598 → ₹3,676 as the index went 38,673 → 77,459 (Trendlyne, 15 Jul 2026).

Nifty 50 level vs Nifty 50 EPS · r ≈ 0.97Nifty 50 (level)EPS (₹)

Nifty 50 EPS climbed ₹480 → ₹1,158 while the index went 11,624 → 24,139 — correlation ≈ 0.97. Since FY26-end price is up 8.1% on EPS up 4.0%; P/E 20.75 (Trendlyne, 15 Jul 2026).

What it means

Since FY24, price has run ahead of earnings — the gap is held up by domestic flows (SIP / DII), not profit growth. FY27 has picked up where FY26 left off: since March the Nifty is up 8.1% on EPS up 4.0%, and the Sensex up 7.7% on EPS up just 2.7% — price running two to three times earnings. That keeps FY27 the swing year: earnings must keep closing the gap, or valuations correct. Large-caps (20.75× P/E, below their 5Y average) have more room than the still-rich small-caps.